Missouri is a large state that is situated in the western part of the United States of America. It has four major cities and over 110 counties. This makes it a highly populated state in the country. According to the demographic analysis done in the state, the population has been increasing over the years due to increase in foreigners who come in search of jobs and settlement (Hoffhaus 10). However, this population has been regulated to avoid overpopulation in the state. The people living in this state are of diverse backgrounds. This has brought in diverse ideas to form constructive activities that improve the economy of the state.
There are many economic activities that are undertaken in Missouri. For instance, activities such as manufacturing, transportation and tourism are undertaken by various participants in the economy. This help to generate revenue for the development of the state. However, these activities cannot guarantee sufficient revenue to undertake all projects. This is the major reason why the governing bodies have set policies that increase the revenue generated from the citizens. One major policy that has helped to raise revenue is taxation. Although it has acted as a pinch to the less earning citizens, it has helped them indirectly through infrastructure development and improvement in the education sector (Hoffhaus 14).
The taxation policies of Missouri have not been complimented by everyone in the country. Despite the fact that the income tax in this state has been diversified, analysts have argued that the taxation of cigarette in this state is not satisfactory. Some analysts argue that the citizens of this state are the ones to blame since they are the ones who voted against the increment of the tax rate on cigarettes. They only mind about their financial welfare but do not mind about the future welfare of the state.
One of the reasons why many people voted against the increment of cigarette tax in the state is that a large portion of the voters are smokers. Some of them argued that they were already paying more than enough for the cigarettes. Other smokers argued that they were left with little money to buy basic commodities after they had bought cigarette. Increasing the tax rate on cigarettes would therefore worsen their financial situation (Foley 17). Those who were for the increment of this tax were in support of development projects in the state. The supporters were mostly those who do not take alcohol or cigarette.
The increase in cigarette tax would affect the pricing of the cigarettes. For instance, most of the sellers would not want to bear the burden of this tax. They would therefore transfer this burden to the consumers in a process called forward shifting. Forward shifting is a process where a seller transfers the burden of tax to the consumer through increase in prices. When the price of the cigarette increases, then there would be more pinch on the consumers than on the producers. In most cases, the price of the commodity increases by the amount of tax imposed on the commodity (Foley 20). However, the sellers may try to take advantage and increase the price beyond the desirable level in order to gain super normal profits.
In order to know how consumer purchasing will be affected by increase in the price of cigarettes, it is important to understand the theory of demand. This theory states that as the price of a commodity increases, the quantity demanded will decrease and vice versa. This therefore implies that if the cigarette tax is increased, then there will be less people who will be willing to buy the commodity. Unless the income of low earning households is increased, then they will face worse budget constraints. The increment of this tax will prevent people from smoking cigarettes.
Since cigarette tax leads to increase in the price of cigarettes, the consumption of cigarettes will reduce. If consumer’s budget constraint becomes worse than before, they might be forced to be smoking once in a while. For those who cannot afford money for cigarettes, they would prefer going to rehabilitation centers with a view to stop the consumption of cigarettes. The stoppage of consumption of cigarettes will be much easier for those who are not addicted to this commodity. The aggregate demand for cigarette will decrease when this tax is increased. It will also reduce the level of addiction of this commodity.
The increment of cigarette tax mostly targets the young people who are influenced by the peers to indulge in the consumption of cigarette. If the tax is increased, their consumption will reduce. This is because most young people are not employed and cannot get adequate funds to buy expensive commodities. Some health officers have argued that increasing this tax will act as a measure for the future health of the country. This is because there will be fewer smokers and the cases of cancer in the country will reduce (Martin 9).
The supply of a commodity also affects the pricing of a commodity. This can be explained by the theory of supply. This theory states that as the price of a commodity increases, the supply increases and vice versa (Jenifer 18). This is only possible when all other things are held constant. If the cigarette tax is increased, then it means that the assumption of ceteris paribus (all things held constant) will not apply.
There are various market structures in the economy of a country. Examples of these include monopoly and perfect competitive markets. In a perfect competitive market, the forces of demand as well as those of supply are responsible for setting the equilibrium price and quantity in the market. This means that at equilibrium, quantity demanded is equal to the quantity supplied. If there are any changes in the price of the commodity, then the equilibrium quantity and price will be achieved through automatic adjustment in the market mechanism. The cigarette tax will increase the price, which will shift the demand curve downwards, leading to a reduction in the quantity demanded. The equilibrium quantity will therefore be lower.
Advertisements have been used by large companies in order to attract customers to buy their products. Various companies may be advertising the same commodities through the social media. People will make comparison of the prices offered, taking into consideration the quality of the commodities. If the commodities have the same quality, consumers will be willing to pay for the lowest price offered. Consumers only view advertisement as a way of conveying information regarding the product, quality, price and availability. However, advertisement of products does not make enough efforts to show how the product might be harmful to the users (Olive 21). In Missouri, non-smokers have argued that caveat on cigarettes is written using very small letters which are not easily seen by the buyers.
Apart from reduction in the demand of the commodity, increase in cigarette tax will have other effects in the economy of Missouri. One other effect is that it will increase the revenue for the government. Missouri has a very large population of smokers. If tax is increased, a lot of money would be collected from the consumers in the form of tax. The cigarette tax should be set at a point that guarantees high revenue for the government (Foley 19). If the tax is set at an exaggerated level, then the government may lose revenue instead of gaining. The setting of such tax policies requires adequate economic planning that are meant to improve the development of the state both in the short run and in the long run.
If cigarette tax is imposed in production, then there would be increased cost of production. This would make producers to produce lower quantities in order to safe on cost. This will be done as they search for more efficient methods of production. The tax will therefore reduce the incentives of firms producing cigarette in order to reduce the level of cigarette production. If this is done, there will be lower quantities of cigarettes that will reach the consumers. The high demand for the cigarettes will not be met and the overall consumption of cigarettes will reduce. This effect may give these firms the alternative of producing other commodities.
Cigarette tax also causes an indirect effect in the health of consumers. There are many cases of cancer mentioned as a result of smoking. This tax will therefore ensure that there are fewer cases of deaths caused by lung cancer. This will also help to reduce the mortality rate in Missouri as a result of health complications. Addiction of cigarette makes a consumer to smoke for many years. The adverse effects of cigarettes therefore accumulate and lead to diseases that are hard to cure. There have also been cases of young people who have died in hospitals a result of consuming cigarette while sick. Cigarette tax therefore reduces these effects and ensures fewer deaths are caused by the consumption of cigarettes (Hoffhaus 25).
Cigarette tax has certain effects on distribution. The consumer preference might change if this tax rate is increased. There will be difficulties in allocating potential consumers since they will not be willing to pay high prices for this commodity. Due to the increase in the tax, some consumers will quit consuming the commodity. This means that the distributors will strive to look for new markets. It would be difficult to find a new smoker since there is no potential consumer who would want to buy a non-basic commodity at a high price. Firms producing cigarette will have to spend more time to locate the reduced number of consumers. They will also incur more searching costs.
If the cigarette tax is not increased, then the distribution effects may affect the overall economy of the state. For instance, there will be increased consumption of this commodity due to favorable prices offered by the sellers of the commodity. Some new smokers might also be recruited into smoking since they will be able to afford buying cigarette at the current market prices. There will be greater distribution of smokers in the state due to less regulation of the consumption of the commodity (Martin 20). Some analysts argue that this would also increase revenue as there will be more consumption of cigarettes in the country. However, it will have serious implications on the general health of the citizens.
Economists in Missouri are of the view that citizens should take health insurance in order to cover for any future contingencies brought about by health problems. Some people have died due to lack of funds to pay for expensive operations. If health insurance is available, the problem of shortage of finance would be solved. The issue of health insurance was divided among the voters of Missouri. Most of the issues that affect the citizens of Missouri are voted for to ensure democracy in the state.
The state is divided between the rich and the poor. The bulk of tax usually falls on the poor citizens more than the rich counterparts. The poor have less income to purchase commodities. Some of them cannot even afford basic commodities. Increasing the level of tax to them increases the overall financial burden since their income is still fixed. If the poor people adjust their consumption, then they might be forced to reduce the consumption of some other commodities if they are addicted to smoking (Olive 22). They will consume cigarettes at the expense of other commodities.
For the rich people, money used for purchasing cigarettes usually comes from surplus income. Some of the rich people consume cigarettes as a luxury. Even if the cigarette tax is increased, they will not feel much effect since they can still purchase other commodities without any adverse effects on their financial budget. The consumption of cigarettes among the rich does not change much even after the increment of the cigarette tax (Jenifer 15). This is because their income is high and there budget constraint does not become worse off as compared to the poor people. Some of the rich people usually buy cigarettes in large packets. They therefore gain economies of scale since buying large quantities of a commodity has some savings on overall cost. This is because you might buy at a relatively lower price than when you buy only one cigarette at a time.
Cigarette tax generates revenue for the government that is utilized in various areas. $92 million was generated in Missouri as revenue from cigarette tax at the end of June 2012. However, this was not large enough as compared to other states in the country. The policy makers of a state usually make forecasts of the development needs of a certain area and make the budget that would be required to finance the projects (Foley 24). They also make projections of the availability of funds to implement these projects. In some critical programs, there might be deficits which need to be filled. In Missouri, the deficit in the economy has been estimated to be $600 million. Cigarette tax is at times imposed to cover these deficits. The revenue realized is used in critical programs that are inevitable to conduct. The surplus is used in other development programs. The allocation of funds in these programs is done by order of priority.
Statistical records show that in Missouri, a cigarette pack is taxed at 17 cents. This value is the lowest as compared to the cigarette tax in other major places like New York, South Carolina and Illinois. For instance, the tax imposed on the smokers of South Carolina is 57 cents for every pack. This has helped this place to get more revenue for the government. Budget planners in Missouri argued that the tax should be raised up to $1.28 for every pack in order to guarantee adequate revenue for the projects undertaken in the state.
In order to control the level of smoking in the country, economic planners promote non-smoking awareness in education institutions. Learning in these institutions should be improved in order to incorporate teachings on the adverse effects of smoking. Some of the revenue received from cigarette tax is used to promote awareness campaigns against smoking. In addition, some of these funds are used to promote programs that prevent the consumption of the commodity, especially among the youth (Hoffhaus 22). Through revenue collected from this form of tax, the government has been able to develop rehabilitation centers to accommodate addicted smokers who are willing to cease smoking. Encouraging people to visit these places will help to reduce the level of smoking in the country.
Some of the revenue realized from cigarette tax is used to conduct research regarding the effects of smoking among the various citizens of Missouri. This research has enabled the government to know how adverse the effects of smoking are. This kind of research also promotes awareness among students in learning institutions. At the end of the research, recommendations are usually made in order to provide solutions to any problems facing smokers.
A large portion of revenue also goes to the treatment of diseases that are brought about by smoking (Martin 21). This helps to control the number of deaths caused by smoking. One of the objectives of the government is to provide quality health to all citizens regardless of age, ethnicity or religion. Treatment of such diseases is usually expensive and the poor people cannot afford to pay for the services offered. If smoking in the country increases, the costs of health will rise. This is because there will be increased cases of lung cancer and other diseases related to smoking.
The cigarette tax increases the overall budget of the government. This helps improve the allocation of funds among various sectors of the economy. The revenue realized is used to provide incentives in the production of commodities that increase the economic growth of the country. The funds received from cigarette tax can also be used by the government to carry out its administration functions in the country.
In conclusion, relevant leaders in Missouri should ensure that there is good health among its residents in order to maintain higher productivity in the state. This will be possible if future sicknesses are prevented in the present time period. The level of smoking should be controlled in order to ensure that less revenue will be spent to cure diseases that can be prevented. This revenue can instead be used to finance other projects that help in stabilizing the general economic situation in Missouri. Finally, policy planners should set a cigarette tax that guarantees a decrease in the consumption of cigarettes. This tax level should also guarantee adequate funds for the government.
References
Hoffhaus, M. Policies in Missouri. Kansas City. Lowell Press. 2009. Print.
Foley, S. Effects of Cigarette Tax. London. Palgrave Macmillan. 2010. Print.
Martin, M. Taxation on Smokers: Missouri. New York. Mc-Grade. 2011. Print.
Jenifer, G. Forms of Government Revenue. Chicago. Chicago University Press. 2008. Print.
Olive, M. Taxes in Missouri. Kansas City. Lowell Press. 2012. Print.
